Outside capital has powerful applications for pharma brands, universities and generics manufacturers seeking to de-risk and pursue valuable IP assets, and may spell the difference between success and failure in costly and protracted patent suits.
In the past decade IP litigation has grown more costly and risky,1 but none more so than pharmaceutical patent litigation. Unlike ordinary IP disputes, the complexity of pharmaceutical patents and associated regulatory hurdles amplify risk. And even if a claimant secures a successful judgment, it may well be overturned, like two of the largest pharma awards of the last decade, the $2.54 billion verdict against Gilead Sciences in 2016 and the $1.67 billion verdict against Abbott Laboratories in 2011.
Still, pharma patent holders—and challengers to those patents—have been slow to adopt legal finance to manage this risk. This is counter-intuitive: even if the verdicts against Gilead and Abbott are deemed outliers, pharma patent holders and challengers face significant risk. Outside capital has powerful applications for pharma brands, universities and generics manufacturers seeking to de-risk and pursue valuable IP assets, and may spell the difference between success and failure in costly and protracted patent suits.
Legal finance for infringement litigation
Infringement activity is often financially ruinous for patent holders, but innovative brands and universities face distinct challenges in bringing and sustaining disputes needed to protect valuable pharma IP.
Innovative pharma brands
For innovative pharma brands, product development is risky, costly and necessary—as is patent litigation when infringement occurs or is threatened. Still, litigation hardly guarantees a path to recovering lost value. Even when IP owners win expensive, years-long legal battles, the associated awards pose substantial post-verdict risk. Cash-rich pharma brands face limitations on the number of meritorious claims they can pursue without placing undue cost and risk on corporate balance sheets; pharma brands with less cash may be discouraged from pursuing litigation altogether. Legal finance offers a powerful solution for both.
Regardless of a pharma brand’s cash position, legal finance eliminates the downside risk of loss in litigation. Entering pharma patent litigation with legal finance in hand ensures that, even as a dispute inevitably twists and turns, the patent holder will have the financial backing needed to endure a protracted legal battle. Legal finance also opens financial opportunity: It can also be used to build a robust litigation recovery program or to generate working capital and free up cash for investing back into essential research and development.
Universities likewise face challenges to bringing meritorious IP litigation, although their challenges are not solely capital based. Like pharma brands, these institutions spend considerable sums on research, yet see valuable IP flowing into the market through infringement. Unfortunately, universities often are reluctant to assert their patent rights in court, for fear of harming both their bottom line and their reputation. But by refusing to defend their IP rights, universities not only lose revenue, they also enable and embolden future infringement activity.
In addition to conferring financial and risk-management benefits on universities, pursuing IP litigation with legal finance in hand signals to both the market and the infringer that the underlying claim is meritorious. This mitigates fear of being perceived as a “patent troll” and allows institutions to proceed with litigation while dispelling such a notion.
Legal finance for generics litigation
While infringement litigation may earn eye-popping judgments and splashy headlines, generics development also leads to disputes that carry equally significant cost and risk. The Hatch-Waxman Act ensures that would-be generics developers can challenge the validity and/or infringement of patents covering brand name drugs upon filing abbreviated new drug applications (ANDAs) with Paragraph IV certifications inevitably triggering patent litigation from the innovator (patent owner asserting its patents and seeking to continue selling its drug without generic competition). Patent challengers perform an essential competitive duty, but they often lack the financial resources and risk tolerance to pursue and sustain claims against cash-rich pharma brands whose businesses depend on protecting their IP and exclusive sales.
Legal finance can play a pivotal role in allowing these important claims to proceed, despite their unique challenges. ANDA claims do not result in a monetary judgment, the basis by which legal finance providers typically recover their investment, but sophisticated finance providers can structure their returns around future revenue generated by generics. This offers generics manufacturers a no-risk means of challenging weak patents, allowing critical, meritorious claims to proceed and protecting both consumers and drug makers alike.
Adding value beyond capital
In addition to the cost and risk management benefits connected to legal finance, the right finance partner can add value extending well beyond simply providing access to capital. Given the non-recourse nature of legal finance, the financier’s interests are mutually aligned with those of its counterparties. A partner like Burford has reviewed thousands of patent matters and can provide valuable insights that help guide patent disputes towards favorable outcomes. Control over litigation and settlement decisions remains squarely with the claimant.
Financing the future of pharmaceuticals litigation
With the economy in a major downturn, IP litigation promises to become even more costly and risky in the months and years ahead. While the pharma space has been slow to adopt legal finance, that trend is already reversing as pharma brands, universities and generics manufacturers recognize the panoply of benefits of risk-bearing capital as untold millions on the line.
Joshua Harris is Vice President with responsibility for assessing and underwriting legal risk, focusing on patent and intellectual property matters. Prior to joining Burford, he was a litigator in Loeb & Loeb’s New York office with a patent practice focused on pharmaceutical patent litigation and counseling.
 Dani Kass. “Tracing The Fate Of The Decade's Biggest Patent Verdicts.” Law 360 (March 2020). Available at: https://www.law360.com/ip/articles/1248167/tracing-the-fate-of-the-decade-s-biggest-patent-verdicts